The Dark Side of Crowdfunding

Crowdfunding is a phenomenon that has completely changed the face of fundraising. It seems every week brings news of some record-breaking fundraising campaign at Kickstarter or Indiegogo. They’re not bringing in small amounts, either; $124 million was raised via crowdfunding in the first three months of 2014 alone. Although these numbers may suggest that crowdfunding is the future of fundraising, there is more to the picture. There are problems with these platforms that need to be addressed before crowdfunding can really become the innovation that many herald it to be.

One of the most apparent problems with many campaigns is the difference between what’s promised versus what the consumers actually receive. A smart watch called the Kreyos Meteor was pitched by the startup Kreyos in November 2013. The campaign was successfully funded on Indiegogo and eventually received $1.5 million in backing. However, after numerous delays, the released product was vastly inferior to what was originally promised. The smart watch had numerous flaws, such as unresponsive motion controls and issues with keeping time, while also failing to live up to promises it made in the product’s initial pitch.

This is just one of many crowdfunding campaigns to significantly change the product’s concept or mislead backers about the nature of the project. Though it isn’t strictly fraud, as the product is eventually finished and shipped, it is very dishonest. This practice is only discouraged with a veritable slap on the wrist from the platforms; Kickstarter’s accountability policy asks that the campaigners be transparent with backers, with a penalty of “damage to your reputation” coupled with a vague threat of “legal action.” Indiegogo offers only an optional verification to identify legitimate businesses. Neither platform provides any support to backers who were misled about a project, as per their laissez-faire, hands-off attitude toward projects.

Not only is there little punishment for these practices, there’s strong incentive; according to Andrea Hickerson, a professor of RIT’s School of Communications, “The problem is, if you don’t meet your deadlines, you’re probably not going to get funded again.” With this kind of pressure, it’s not surprising that a startup would exaggerate and mislead backers to obtain funding. It’s true that risk is inherent in funding these kinds of projects. But when there are no concrete consequences for dishonest business practices, it leaves the door open for future abuse.

Another issue in crowdfunding that needs addressing is the attitude of the backers. Hickerson says that backers aren’t looking to support a creative endeavor as much as they “want the first of that product.” This consumer relationship is problematic for a platform meant for fundraising and startups, especially when, according to a CNN report, 84 percent of the top 50 Kickstarters were shipped out late. Kickstarter has even banned photo-realistic renderings of unfinished projects to avoid confusion in backers in a blog post frankly titled “Kickstarter Is Not A Store.” The distinction between paying money for a product and paying money for the idea of a product remains ill-defined, especially if a project is overselling itself.

It is an understatement to say that crowdfunding will play an role in the future of countless industries. Its accessibility and simplicity has virtually democratized fundraising, allowing for the creation of projects that otherwise wouldn’t exist. That is precisely why these issues can’t be ignored; for crowdfunding to really have the future it deserves, crowdfunding websites have to try harder to make their services legitimate. All it could take is one bad apple to turn the tide against crowdfunding, meaning sites like Kickstarter and Indiegogo need to be just that much more vigilant.